Pull The Lever

With a recent spark lit in the gaming space by WYNN and their CEO Steve Wynn, Boyd Gaming (BYD) furthered that sentiment today reporting better than expected earnings after the bell today. 

Heres a quick summation of how they did:

Boyd Gaming beat by $0.03, reported revs in-line; provided 2016 EBITDA guidance

• Reported Q4 earnings of $0.16 per share, excluding non-recurring items, $0.03 better than the  Consensus of $0.13; revenues rose 2.1% year/year to $542.7 mln vs the $541.25 mln Consensus.
• For the full year 2016, the company projects total Adjusted EBITDA, including Peninsula and 50% of Borgata's Adjusted EBITDA, of $635-655 million.

The company issued the following commentary:

The fourth quarter of 2015 was a strong conclusion to a year of solid progress for our Company. Our operating teams continued to drive profitable revenue growth, identify additional efficiencies in our business, and successfully leverage new amenities, all of which contributed to our fifth consecutive quarter of revenue and double-digit Adjusted EBITDA growth. We were particularly encouraged by the performance of our Las Vegas Locals business, as a strengthening economy and effective marketing programs resulted in the segment's strongest fourth-quarter results since 2007. After a strong performance in 2015, we are well-positioned for continued growth and success this year."

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TECH SUPPORT

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If BYD opens here tomorrow it will look to make a run for the 9EMA on the Weekly and Daily basis. Above 18 and expect a challenge 20 and potentially a rounded bottom on the monthly. 

Oink Oink

As markets trend higher, it is commonplace that stocks will receive a multiple that exceeds their "fair market value." This multiple that they are assigned will naturally continue to appreciate and expand so long as the stock in question continues to perform and "meet expectations." This increase and disjointed market perception will assign a "premium" to particular Wall St. darlings and makes for a situation where certain stocks trade well above their reality. 

I present to you, Hormel Foods (HRL). 

This pig (pun intended) has risen in stock price significantly faster than the S&P 500 in the past year and it's peer group. Hormel's moonshot rise has can be attributed to the following:

• Improved quarter over quarter EPS growth (5.9% in the most recent quarter)
• Pattern of positive EPS growth over the past two years 
• Year over year bottom line growth ($2.23 vs $1.94) and an expectation of improved earnings year over year ($2.60 vs $2.23)
• Net income growth from the same quarter one year ago exceeded the S&P 500 and has decimated any competition. ($137.98M vs $146.94M)
• Net operating cash flow increased significantly (104.89% to $244.51M) when compared to same quarter (most recent quarter) last year
• Debt to equity ratio is 0.15 and is below that of the industry average. This implies that the company is really good at managing debt and improving operating efficiencies.

As you can see above, the stock is beyond extended and is showing signs of a parabolic move on the monthly basis. It's tough to see how this trend can continue in such an environment for stocks. 

 

Blue Bird

What can we say about this piece of crap? No support on the chart, part time CEO, and part time investors. 

TWTR reported Q3 results at 4:10pm. Current consensus stands at EPS of $0.12 on Revenue of $710M.

Shares of TWTR have been under steady selling pressure since hitting $55 last April. The slide has led the stock to all time lows as it trades in the $14 area ahead of tonight's report. A lack of growth in its user base has been a key in driving the stock lower.People are questioning TWTR's viability compared to it's primary social media peer Facebook (FB) which continues to grow at a faster rate despite a user base that is 5x the size. TWTR has also had issues with it's top management as there were four notable departures. A concern for investors as the co is in the midst of a turnaround plan.

The combined issues have led to sentiment dropping to an all time low. Investors would like to see signs that the turnaround is starting to show some rewards despite the departures. And perhaps most importantly investors would like to see a stabilization of the user base.

Key Metrics

• Monthly Active Users- Q3 Total average MAUs were 320 mln, up 11% y/y, and compared to 316 million in the previous quarter (Current expectations are 324 mln). 

• Excluding SMS Fast Followers, MAUs were 307 million for the third quarter, up 8% y/y, and compared to 304 million in the previous quarter. (4Q15 was 292 mln)

• Q3 Mobile MAUs represented approximately 80% of total MAUs.
• Q3 Advertising revenue totaled $513 million, an increase of 60% y/y.
• Q3 Mobile advertising revenue was 86% of total advertising revenue.
• Q3 Data licensing and other revenue totaled $56 million, an increase of 37% y/y.

Guidance

• TWTR issued downside guidance for Q4, projecting revenue in the range of $695-710 mln vs. then-$741.70 mln Capital IQ Consensus Estimate.
• Q4 Adjusted EBITDA is projected to be in the range of $155-175 mln.
• GAAP expenses are projected to include the vast majority of the $5-15 mln of total restructuring charges expected from corporate restructuring activities. These charges are projected to be $10-20 mln. The majority of corporate restructuring charges will be in Q4 (this is excluded from Q4 EBITDA guidance).
• Capital expenditures are projected to be no more than $110 million.
• TWTR is expected to guide for Q1 and FY16
  • Q1 Capital IQ consensus- EPS $0.08, Revenue $629 mln.
  • FY16 Capital IQ consensus $0.54, Revenue $3.093 bln.

Q3 Recap

TWTR reported Q3 (Sep) earnings of $0.10 per share, $0.05 better than the Capital IQ Consensus of $0.05. Revenues rose 57.6% year/year to $569 mln vs the $562.17 mln Capital IQ Consensus.

• Revenue Breakdown
  • Advertising revenue totaled $513 million, an increase of 60% y/y (Q2 +63%)
  • Mobile advertising revenue was 86% of total advertising revenue.
  • Data licensing and other revenue totaled $56 million, an increase of 37% y/y (Q2 +44% y/y)
  • U.S. revenue totaled $370 million, an increase of 54% y/y (Q2 +53% y/y)
  • International revenue totaled $199 million, an increase of 65% y/y (Q2 +78% y/y).

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BIRD SHIT

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Q4 EPS of $0.16 vs $0.12 Capital IQ Consensus Estimate

Q4 Monthly Active Users 320 mln (+10% y/y); Street Expectations were for approx flat q/q; Q3 was 324 mln (+11% y/y), 4Q14 was 292 mln

Cut The Cord

Disney ($DIS) is set to report Q1'16 earnings after the bell this afternoon, at 4:15pm ET. The company has an earnings webcast scheduled to follow at 5:00pm ET, which can be found on their investor relations page of their website. Disney does not typically provide forward earnings or revenue guidance with its release or during its conference call.

Key Metric: Current Capital IQ Consensus is for adj EPS of $1.44 on revenues +19% Y/Y to $14.75 bln.

• FY16 Cap IQ Consensus is for adj EPS of $5.66 on revenues +7% to $56 bln.
• Interesting fact: Disney has reported adjusted EPS above, or equal to (twice), Capital IQ Consensus every quarter since Q2 2011.
  • Last quarter, Disney beat on Q3 EPS of $1.20 ($1.14 Capital IQ Consensus) and reported in-line revenues of $13.51 bln.

Cut the Cord:

With ESPN being a huge revenue driver, the company was (possibly still is) tied to cable and media networks. Revs from media networks account(ed) for ~31% of the company's revs. 

• One of the largest concerns investors have about Disney is that services like Netflix, HULU, and Amazon Prime are going to create headwinds for cable subscriptions going forward as consumers "cut the cord." The fear is that if cable subscriptions face headwinds, so too does Disney's Cable Networks revenue.
• ESPN estimated their subscribers at ~92 mln as of October 3, 2015, which was down 3 mln from September 27, 2014 and down 7 mln from September 28, 2013.

Revs from the Cable Networks decreased their Y/Y growth from 12.2% in FY11 to 9.7% in 2015 (Growth fell to 5.8% in 2012, 6.1% in 2013, and 4.5% in 2014)

• Disney announced that Star Wars: The Force Awakens was the largest U.S. box office of all time, surpassing Avatar's $760.5 mln record in just 20 days. It's since crossed $2B

Q4'15 Segment Results

• Media Networks
  • Revenues of $5.8 bln; up 12% Y/Y and flat Q/Q.
  • Operating income of $1.8 bln; up 27% Y/Y and down 25% Q/Q.
  • Operating income increased Y/Y as a result of an increase at ESPN as well as to A&E Television and Disney Channels, to a lesser extent. ESPN reflected a benefit of a 53rd week, higher affiliate revenues and higher advertising revenues

This chart is setting up for a potential small pop (to sell) or an implosion. 

BIAS: Bearish

Interwebbed

$AKAM reports ER after the bell today. The call is at 4:30pm EST. 

Consensus is: EPS of $0.63 (versus $0.70 last year) on revenue of $568.8 mln (+6% YoY). The current consensus is within the company's guidance range of $0.60-0.64 & revenue of $557-577 mln. The company is expected to guide for the first quarter where Capital IQ consensus stands at $0.62 & revenue of $567.9 mln.

The company has said it expects a decline in revenue in Q4 and three of largest US media accounts. With FB showing that ad sales are through the roof this leads me to believe there is a bigger issue here with the management or with the positioning they've taken for the future benefit of the company.

The company said the revenue decline was driven primarily by slowing traffic growth and a very strong Q4 2014.

Again, not sure how that was possible with a growth in web traffic. It seems they may need to look forward yet again.

Metrics:

The first area of interest will be various metrics. Taking a look at last quarter, the company reported adjusted EBITDA of $222 mln, which grew 4% over Q3. Adjusted EBITDA margin was 40%, down 3 percentage points YoY. Looking ahead to the fourth quarter, the company expects adjusted EBITDA margins of 40-41%. Looking beyond Q4, the company will strive to operate the company in the 40% to 41% EBITDA range for the foreseeable future. 

Taking a look at last quarter, the GAAP gross margin was 67% which was in line with the prior quarter and down 1 percentage point from the same period last year. Looking ahead to the fourth quarter, the company expects GAAP gross margins to come in around 66%. DA Davidson expects 44% of rev from the Media Delivery group, 48% from the Performance and Security group, and the remaining 8% from the Service and Support group. The firm also expects gross margins of 66%, operating margin of 27.9%, and EPS of $0.60, which compares to $0.70 in the year-ago quarter. Q4 is typically a strong seasonal quarter, with online retail activity through the holiday season providing a tailwind to growth.

Options Activity

• Based on AKAM options, the current implied volatility stands at ~ 75%, which is 64% higher than historical volatility (over the past 30 days). Based on the AKAM Weekly Feb12 $40 straddle, the options market is currently pricing in a move of ~12% in either direction by weekly expiration (Friday).

Technical

• AKAM shares have underperformed the Nasdaq so far this year with AKAM falling by 22% vs 14% decline in the index. 

Look for resistance near $44.00 & $45.60-46

Get Some Sun ($SCTY)

Solar City (SCTY) is set to report Q4 results today after the close with a conference call to follow at 5pm ET.  

Current consensus stands at a loss of $2.59 per share on Revenue of $105.6 mln.

SCTY's stock has seen an aggressively wide range the last several years. It has traded down to multiyear support ahead of its report after trading near 40/share last quarter's report. It also was a stock approaching $60/share in December.

SCTY announced last earnings that it was switching from a growth tactic to cost cutting and cash flow. 

SCTY projected it would be cash flow break even by the end of 2016 and it will be important to show that the co will be able to hit these targets. The 52-week low will set up as a key support for SCTY as it will have to deal with what is likely to be a hefty top line miss.

Guidance

• Installations of 280 to 300 MW in the fourth quarter. This would represent year-over-year growth of 58%-69% and would translate into full-year 2015 installations of 878-898 MW. This is below the low end of prior annual guidance.

  • Q4 2015 GAAP revenue guidance Operating Lease and Solar Energy Systems Incentive Revenue of $70-76 million, up 48% y/y; Solar Energy System and Component Sale Revenue is expected to range between $30-32 mln (Total Revenue guidance is $100-108 mln, Capital IQ consensus $117 mln).
  • Operating Lease and Solar Energy Systems Incentive Gross Margin is expected to range between 30% - 32%.
  • Non-GAAP Loss Per Share is expected to range between ($2.60)-($2.75), Capital IQ consensus ($2.15)
• FY2016 Guidance Introduction
  • Co introduced preliminary 2016 guidance of 1.25 GW Installed, representing a y/y growth of ~41%.
  • SCTY expects to announce meaningful reductions to 2017 cost targets by this earnings call.
  • Expect to be cash flow break even by the end of 2016.

Q3 Recap

SCTY reported Q3 (Sep) loss of $0.20 per share, $1.74 better than the Capital IQ Consensus of ($1.94). Revenues rose 95.1% year/year to $113.85 mln vs the $111.43 mln Capital IQ Consensus.

• Cost per Watt achieved a new record low of $2.84

• PowerCo Platform
  • TTM Energy Production: 1.5 Terawatt-Hour (TWh), up 75% y/y
  • Cumulative MW Installed: 1,674 MW, up 86% y/y
  • Cumulative Customers: 298,030, up 77% y/y
  • Estimated Nominal Contracted Payments Remaining: $8.9 billion, up 115% y/y
  • Net Retained Value: $3.3 Billion, or ~$33 per basic share.
• DevCo
  • Crossed Annualized Run Rate of 1 GW in Installations in 3Q
  • MW Installed: Record 256 MW, up 86% y/y; residential up 69% y/y;
  • MW Booked: 345 MW, up 50% y/y;
  • Net Increase in Nominal Contracted Payments Remaining: $1.2 billion, up 47% y/y;
  • DevCo Cost: $2.84 per Watt, down (2%) y/y;
  • Unlevered IRR: 12% forecast from Q3 2015 installations based on all-in costs including SG&A
  • Economic Value Creation: $239 Million forecast from our incremental Q3 2015 installations

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BIAS: SELL

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UPDATE

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SolarCity beats by $2.63, beats on revs; guides Q1 EPS below consensus  (26.35 -1.59)

• Reports Q4 (Dec) earnings of $0.04 per share, $2.63 better than the Capital IQ Consensus of ($2.59); revenues rose 60.8% year/year to $115.48 mln vs the $105.67 mln Capital IQ Consensus.
  • MW Installed: Record 272 MW, up 54% year-over-year (Guidance 280-300 MW)
  • MW Deployed: 253 MW, up 44% year-over-year
  • Value of MW Deployed under Energy Contracts: $3.64 per watt at a 6% discount rate ($3.32 per watt contracted and $0.32 per watt estimated renewal)
  • Cost per Watt: $2.71 per watt, down 5% year-over-year;
  • Asset Financing in Q4 2015: $2.40 per watt.
  • As of December 31, 2015, unrestricted Cash and Investments totaled $394 million, as compared to $418 million on September 30, 2015. The quarterly decline in cash of $137 million.
  • Residential has consistently performed above expectations over the last year, and missed guidance largely on commercial installations.
  • Going forward, plan on removing from guidance any large projects with construction deadlines late in the quarter

Un-Linked

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LNKD

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LinkedIn beat the street's expectations by $0.16, reported revs in-line; guides Q1 and FY16 EPS and rev below consensus.

Here are the highlights: 

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• Reports Q4 (Dec) earnings of $0.94 per share, excluding non-recurring items, $0.16 better than the Capital IQ Consensus of $0.78; revenues rose 34.0% year/year to $862 mln vs the $857.26 mln Capital IQ Consensus.
• Co issues downside guidance for Q1, sees EPS of ~$0.55, excluding non-recurring items, vs. $0.74 Capital IQ Consensus Estimate; sees Q1 revs of ~$820 mln vs. $866.50 mln Capital IQ Consensus Estimate.
• Co issues downside guidance for FY16, sees EPS of ~$3.05-3.20, excluding non-recurring items, vs. $3.73 Capital IQ Consensus Estimate; sees FY16 revs of $3.6-3.65 bln vs. $3.91 bln Capital IQ Consensus Estimate. 
• In the quarter, cumulative members grew 19% to 414 million, unique visiting members grew 7% to an average of 100 million per month, and member page views grew 26%. This yielded 17% year over year growth in page views per unique visiting member, continuing a pattern of strong engagement growth over the past several quarters. Mobile in particular grew 3x faster than overall member activity, and now represents 57% of all traffic to LinkedIn.

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For the current numbers LinkedIn did okay. They beat the expectations and that's the name of the game. However this company trades on their growth and as with any growth stock, cutting your guidance and forward growth (especially in this environment) is bad news. 

Going into today's report LNKD traded at a forward P/E (FY Dec 31, 2016) of 52.39 and enterprise Value/EBITDA(ttm) 100.63. The enterprise value/EBITDA # is just stupid insane for any company. Investors in companies like this are ignoring this info and simply buying a stock on its potential growth. As long as a stock is growing, numbers like this will continue to be ignored. When a stock like LNKD reports #'s that revise their growth lower and show their MAU is stuck at 100M it is going to get obliterated. That is exactly what happened. 

From a technical standpoint, LNKD looks like this: 

From the weekly and monthly charts you can see LNKD has broken down in a head and shoulder fashion and is likely going to test its 2013 breakout point of around $120. 

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FELICIA

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LinkedIn has spent the last four years enjoying a rise and an acceptance by investors that they were investing in the future growth of this social media company. Talking head after talking head came on television to defend the stock claiming it's got great management and they can "pull many levers" to optimize the growth. Well, how's that working out for you assholes? Way to pump and dump all over the little guys, again. 

💯Bye Felicia 💯

Big DATA

Mizuho stays at Neutral, $80 tgt on DATA ahead of the results as they expect total revs of $218-225mm (+52-57% Y/ Y) vs consensus of $201mm and guidance of $195-200mm. Inline with the last few qtrs, mgmt guided 4Q15 significantly below normal seasonality. Since 2Q14, co has posted results $10-19mm above the upper end of mgmt's outlook. They expect similar performance given strong momentum and increased sales force productivity. Firm expects EPS of $0.22-0.24 vs consensus of $0.16. Also, checks indicate rising competition which may impact co's sales cycle going forward, and they expect mgmt is likely to raise 2016 outlook.

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BIAS

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With analysts giving them a pass and expecting the results to continue, IV cranked through the roof ($11 expected move) and with the rally today, I am a seller at these levels. The stock is sitting at a neckline for a longer term head and shoulders and I would not take my chances long here. 

BIAS: STAY NEUTRAL OR HARD SELL

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UPDATE

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Warned subscribers in the room about DATA and their high P/E. The stock's future hangs/hung on year over year revenue growth. The issue needed to show Wall St. that that the last two quarterly declines in revenue were anomalies and it was our bias that that was not the case. 

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RESULTS

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Reported Q4 (Dec) earnings of $0.33 per share, $0.18 better than the Capital IQ Consensus of $0.15; revenues rose 41.9% year/year to $202.8 mln vs the $200.66 mln Capital IQ Consensus.

• License revenue grew to $133.1 million, up 31% year over year.
• International revenue grew to $53.7 million, up 63% year over year.
• Added more than 3,600 new customer accounts.
• Closed 414 transactions greater than $100,000, up 36% year over year.

On the outside, this looks like a beat and a good report. 

THIS REPORT SUCKS

This stock received a high multiple based on their growth. If you focus on their revenue rise (41.9%) it is 33% less than the last (2) quarters. This shows a shocking deceleration in growth and you see that displayed right now with the equity price (~34% decline). Hate to break it to you, but this high growth name is OVER.

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Previous ER showing Rev Yr-Yr

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OUR TRADE

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If you're in the Feb/Mar 75 puts with us congrats. Use tomorrow as an opportunity to sell and lock your profits and look to roll out to march as the issue will more than likely touch it's IPO lows. 

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White Flag! White Flag! White Flag!

“Don’t give me timing, give me time.”

— Jesse Livermore

The most common theme I see from traders is when they are in a "slump" and want to break that habit and move forward in their trading. As a trader it is important to know that we are all human and we all fuck up. We buy the highs and we sell the lows, we compound our problems and overanalyze. We miss trades, we overtrade, and we don't take trades. The above should resonate with you, if it doesn't you're a fucking liar, go away. 

I'm often asked:

"What do I do to change my trading? How can I be profitable (again)?"

I'm asked this so often in fact that I'm going to dedicate a post to it. 

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Relax...

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The craziest thing about the stock market is its ability to mind fuck you repeatedly. If you trade long enough you will find that you run the gambit of emotions. From frustration, rage, anger, happiness, euphoria, annoyance, fatigue, and many others this market will eat you alive if you let it.

The first thing you should do as a trader is learn to keep a level head and relax. You need to be as level headed as you possibly can be. Practice never getting too up and never getting too down. Your wins are not your own doing. The market is built on fundamental odds/statistics and it is your job as a trader to check your emotions, mitigate your risk, and position yourself (relative to your own risk tolerance) for optimal success. 

If you can temper your expectations and your emotions you will be well ahead of the curve.

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HOMEWORK

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Hate to break it to you but if you're playing the markets for a "Get rich quick" situation, you should just quit now. Save your money, buy something wasteful, go on vacation, start a business, whatever, just don't waste it on the markets. In order to be good at this business, you must be able to adapt quickly to scenarios you did not expect. That takes hours and hours of analyzation, pattern recognition, and discipline. Sure, when you're right the markets will print cash for you like an ATM gone haywire, but it will take the time you're not trading to get you to that place. 

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FIRST THINGS FIRST

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The very first thing you should do when you're struggling or going through a trading drought is absolutely nothing. That's right, I said nothing. Let me go into detail behind the mindset here.

From my experience, I've realized that most major losses I've had have come from reckless trading and/or trying to make up for losses I'd had. I've learned that when I'm on a "bad streak" it's best to initially ratchet down my position size. If this does not work, I will simply study the market and make notes of entries and exits and see how I "would have" done. If that doesn't work, and I'm just way out of touch, I will just shut it down. I will take a day, two, three whatever it takes to just reset. If I return and I am still not getting in sync, I will simply just shut down again. I will continue this practice until I feel mentally prepared to take on the rigors of day to day decision making. 

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HARD REBOOT

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Since the market leaders often change, I find it best for my style to keep a primary list of about thirty stocks at any one time. This doesn't mean that I don't chart or track other stocks, but simply on a day in and day out situation I will track a list of about thirty stocks that I feel comfortable with. This list will change given market sentiments and breadth. 

If we are bearish, my list will consist of stocks that I primarily want to short on breakdowns. The opposite, of course, is also true. Sometimes my lists just are not in sync with the market itself. Nothing on my list will stand out. In that case, I will erase the entire list. 

Thats right, I will erase the whole list and start from scratch. Since I am a momentum trader primarily, I will scan through charts and find where I think the momentum is going. Once I've found this, I will ONLY (I cannot stress this enough) add the strongest stocks that fall in line with the market in general. I will not watch the bullshit (GPRO FEYE etc). I will stick to the top shelf stuff. 

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LAST CALL

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The last thing I want to stress is when things don't go your way it is very important that you keep your cool. Not keeping your cool can really fuck you. Trading is all about mastering the mental and emotional battle with yourself more than anything. It is paramount in my opinion to relieve the outside stresses you face and not let them spill over into your trading. Doing this will help your results. It is also important to be very honest with yourself. You need to make judgments about when things are not going your way and take the adequate time to rebalance. 

Remember, the markets will always be there. There is no reason to rush things. 

I Can Be Your Hero Baby

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GPRO Earnings Preview

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GoPro (GPRO) is set to report Q4 results tonight after the close with a conference call to follow at 5pm ET. GPRO reported Q3 results at 4:04pm and then provided it's Q4 guidance in a presentation released shortly before its conference call. Current Capital IQ consensus stands at EPS of $0.03 on Revenues of $448 mln.

Shares of GPRO have remained mired in the $10 level. The stock was hammered when it preannounced a disappointing Q4 on January 13. This was on the heels of a poor Q3 report (that included disappointing Q4 guidance at the time). GPRO has been hampered by its launch of its HERO4 Session which has seen it cut prices in order to spur demand. This has led to fears that the company's original innovation has run its course. Worries about low barriers of entry also remain.

GPRO still holds its content but that has hardly been enough to placate investor fears. Investors will want to see how sales have been progressing over the past three weeks and will be paying particular attention to inventory levels.

January Preannouncement

• GPRO preannounced results on January 13, cut its work force by 7% and announcement management/board changes
• GPRO lowered Q4 rev to $435 mln from $500-550 mln vs. then-$507.8 mln consensus.
  • Q4 revenue reflected lower than anticipated sales of its capture devices due to slower than expected sell through at retailers, particularly in the first half of the quarter.
  • Fourth quarter revenue includes a $21 million reduction for price protection related charges resulting from the HERO4 Session repricing in December.
• GPRO lowered non-GAAP gross margin to 34.5-35.5%from 45.5-46.5%.
• GoPro implemented a reduction in its workforce of ~7 percent. The Company estimates it will incur ~$5-10 mln of restructuring expenses in Q1.
• Zander Lurie resigned from his role as Senior Vice President of GoPro Entertainment and has been appointed to serve on GoPro's board of directors.

Key Metrics

• Units Shipped- Q3 was 1583 which was down 3% q/q
• Inventory- Increased 32% q/q to $289 mln on the heels of the disappointing HERO4 launch.
  • Inventory Turns was 3.4x compared to 2.7x in Q2
  • Inventory Days was 122.3 compared to 87.7 in Q2. 

Q3 Recap

• GPRO reported Q3 (Sep) earnings of $0.25 per share, $0.04 worse than the Capital IQ Consensus of $0.29. Revenues rose 43.0% year/year to $400.34 mln vs the $431.48 mln Capital IQ Consensus.
• Gross Margin 46.6%, Guidance 45.5-46.5%; Q2 46.4%
• The Board of Directors of GoPro authorized the Company to repurchase up to $300 million of its Class A capital stock, commencing in the fourth quarter of 2015.

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YOU PLAYED YOURSELF

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GoPro (halted) just missed by $0.11, rev in-line with warning; guided Q1 revs well below consensus; guided FY16 revs below consensus; names Brian McGee CFO .

• Reports Q4 (Dec) adj. loss of $0.08 per share, $0.11 worse than the Consensus of $0.03; revenues fell 31.1% year/year to $436.6 mln ($448.56 mlnConsensus); gross margin 29.6%.

• GPRO Warned on Jan 13: Lowered Q4 rev to $435 mln from $500-550 mln; non-GAAP GM to 34.5-35.5% from 45.5-46.5%.

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This story continues to get ugly for the camera maker and their CEO Nick Woodman. Non-GAAP gross margin was impacted by a charge of ~$57 mln to cost of revenue for excess purchase order commitments, excess inventory and obsolete tooling resulting from the Company's decision to discontinue production of the HERO cameras.

This charge is greater than the $30-35 mln that co warned about in January.

• The company issues downside guidance for Q1, sees Q1 revs of $160-180 mln vs. $300.67 mln Capital IQ Consensus; non-GAAP gross margin 35-37%.
•  Co issues downside guidance for FY16, sees FY16 revs of $1.35-1.50 bln vs. $1.63 bln Capital IQ Consensus Estimate. 
• Commencing in the fourth quarter of 2015, GoPro has acquired ~1.5 million shares of its Class A capital stock at an average price per share of approximately $23.05.

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FUGLY

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No matter how you slice it, this quarter was fucking ugly. If you are bullish you're either "punting" or you're blind. To slash estimates the way they did a month ago and follow up with this bullshit which is significantly worse than what they said just a month ago shows a very poor management at hand. 

The derivative to this is Ambarella which will be taken to the woodshed in sympathy for Mr. Woodman and his staff's incompetence. 

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BIAS: Don't play yourself. HARD SELL -- Shit performance, shit management, shit "new products". An acquisition is their only way out at this point. 

 

What's Cookin'?

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Non-Manufacturing ISM

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In the past the non-manufacturing ISM didn't draw many eyeballs. However, with the ISM manufacturing index coming in <50.0 the last four months, bulls are looking for any signs of life that will give the economy a justified boost. 

I don't mean to belittle this report as the majority of business industries in the U.S. are not manufacturing. We are in fact a "service based economy" at this point. This report will be important as it gives a read through to employment and pricing in non-manufacturing based industries. This read through actually does have a wider and more important meaning for the labor markets. 

Some important things to remember: 

• Growth in the non-manufacturing sector has been slowing since July
• ISM manufacturing index has been <50 for four straight months
• Investors are worried and will watch for any spillover from ISM manufacturing 
• The dividing line between expansion and contraction is 50.0
• Trends in this report can influence the markets thoughts about Fed's path toward "policy rate normalization"

This report impacts the following:

• TLT
• TBT
• SHY
• IEF
• SPY
• QQQ
• DIA
• EUR/USD
• USD/JPY

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Jobbin'

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ADP Employment numbers are also due out at 8:15 EST. Consensus numbers are somewhere around the 190k Jobs number. This would be lower than the prior number of 257K. On the low side a number greater than 180K jobs should keep things "okay" for the markets. 

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Who the Fuck Said Anything About Oil? Bitch, You Cookin?

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Oil will continue to dominate the trading screens as the $CL_F closed sub <30 for the first time since it bottomed and rallied from the mid 26 level. Crude inventories will be released at 10:30 a.m. EST. The prior number too look for/compare against is 8.383M barrels.

Murican Made Car Bomb ($GM)

“There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. ”

— Jesse Livermore

The fact that Wall Street repeats its same mistakes over and over again is nothing new. We are human and we are wired the same. If you're monotheistic religious believer or if you're just spiritual the fact greed and self serving is not a new concept to you when it comes to human nature. In religion this is seen early in the story of human creation with the story of Adam and Eve. In life, this takes form over and over again; especially on Wall Street. 

The markets have seen a steady rise for the last seven years on the heels of the largest credit crisis we've ever experienced. Banks packaged loans and sold them to other banks which eventually cratered the basis of the economic system. Now we're starting to see similar patterns in the markets which are usually a 6-8 month foreshadowing of the general/broader economy. So our goal here is to figure out, is it over, did it just begin, or possibly something else. 

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CREDIT DEFAULTS

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I am a believer that we may have the largest debt default in market history. That said, I want to talk about the pattern of defaults, specifically as the relate to corporate bond markets. 

To put it simply, the cycle is usually like this -- Defaults on "speculative" bonds are <5% (basically less than 5% of non-investment grade US corporate bonds default in a year). When we break the 5% mark we (historically) get a three or four year rising, peaking, and then normalization. This is how a "normal" credit cycle usually works. It's healthy. People come up with ideas, turn into business founders, get money, go bankrupt. Rinse and fuckin' repeat. 

Look back in time you see this cycle play itself out over and over again. (See below)

• 1990: Defaults pop from 4% to 8%. In 1991 they peak at ~11% then they decline reaching 6% in 1992. 1993, crisis averted and we go back to normal around 3%. About $50Billion in corporate debt goes into default
• 1999: Machine goes on H.A.M. again, default blast 5+% and then ramp through 2001 hitting 9ish%. Then they start to normalize around 2002 and everything back to normal in 2003.
  • This time the junkies had much more debt than 1990. About 10x more -- $500Billion lost in default. This growth in risk was because of the love of the CDS market.
• 2009: Mortgage crisis starts stinking up every fuckin thing it touches. Defaults power to 10%. This time it was different though. The Fed steps in and stops the cycle dead in its tracks. "Too big to fail" become commonplace and inject some cash steroids into the markets. 
  • $1 TRILLION in debt goes into default (even with the Fed band aid)

Remember though, markets USUALLY go through this cycle where they default, peak, crash and fuckin burn then normalize. The weak die the strong survive and it's c'est la fuckin vie all over again. However in 2009 Uncle Ben and his cronies stopped this normalization process. They stopped it dead in it's tracks and allowed the weak to survive and prevented the crash and normalization. Because of that they "avoided" TRILLIONS of dollars of debt from finding its way back to normalization. They wrote that shit off like it never happened and started pumping money back into the economy, business as usual. 

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QUICK EXAMPLE

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Let me give you a quick example of how you can relate the above mentioned "Fed injection". Think of a person that has a compulsive credit problem. They take out a card, start using the shit out of it notice it's running low so they repeat the problem. Eventually they run up like 7 credit cards and realize "Fuck, I can't pay this off." 

In this example, if it were a normal situation this person would likely default on paying the cards off and probably file bankruptcy or get a second job and pay things down -- lesson learned though. 

Imagine this person has a really rich mom/dad and that parent steps in and is like "Ok, I'll pay this off for you don't ever let it happen again." In this case the person never really learned how big their issue was and never really "fixed" the problem. Their parent (Fed) stepped in and paid off the debts and they went back to business as usual.

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BACK TO CDS PROBLEM

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Because we never had our "debt clearing" situation in 2009, the Fed basically pressed "pause" on the impending doom and gloom. Basically we got a weak recover and an economy that's still heavily leveraged and debt dependent. "Business as usual." 

So because that debt never "cleared" or "flushed" out of the system, we face a catastrophic debt obligation the next time "shit hits the fan." The main question is

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 "When does shit usually go bust?" 

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If you look above, the credit cycle usually starts up 6 years after it normalizes. (1999, 2009). Let's count up the years since we cleared our debt obligati-- Oh shit, we'er on the sixth year. 

In 2006 we had our best year for speculative corporate debt in recent history. Two years later, well you already know what happened. The best since that time was in 2014, and well we're now in year two since then. Let's examine the estimates quickly:

• High yield experts say "base-case scenario" is between $1.6 trillion and $2 trillion in high yield bond defaults. 

Personally, I don't like the conservative estimates because, well, Wall Street is full of greedy fucking money addicts and CDS markets make the size more catastrophic then the base. 

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THE TELL

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In the mortgage crisis, the first tell you had of anything going bad was the default of sub-prime housing loans. So, it goes without saying that we'll check the sub-prime loan market to see if anything sucks there first.

Without doing much digging, we learn two loan markets have ballooned since 2008; Student and Auto loans. 

Let's focus on autos. Every other day you hear some talking head tell you about how auto sales are at peak and record levels. Did people have a bunch of money left over since 2008 and just decided to "treat themselves?"

Short answer: No. Auto loan origination has boomed on a serious drop in lending standards. Not surprising in this junk you find sub-prime lending to people with bad or zero credit and no income. 

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HOW'S THIS HAPPENING?

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Without getting too bogged down with details there's only one simple answer to this; cheap money. The Fed's zero interest rate policy has opened the door for a swoon of raiders to capitalize on the creation and origination of cheap money bad loans. This cheap money gives auto loan originators an interesting dynamic. They basically get "fixed" retail prices and they have high variable costs. When the cost of capital is cheap they pioneer stellar results and when the costs increase they suffer immensely. 

Just like the mortgage crisis, we have yet another issue of subprime auto backed assets. Auto ABS for short. (Emphasis on "BS") We now have more than $20B in subprime Auto ABS. These loans are packaged repackaged and grouped with tons of other loans adding "extra credit protection". The risks are offset with the belief in a "large number is less risky than a small number of loans." 

Without going all "gloom and doom" on you with the ABS market I want to focus on GM. Just know that packaging debts over and over again, especially badly lent debts, is a shit idea and almost never goes well. 

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MURICAN CAR MAKER

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GM is a low-margin auto manufacturer that is dependent on cheap money for the sake of their business model. In a low rate and high auto sale environment you would expect this stock to perform favorably. That has not been the case however as the company is heavily in debt and little cash flows have been spent on paying off governments and unions. 

GM is also, one of the largest owners of sub prime auto loans. The other largest player in auto finance is Santander Consumer USA ($SC), That issue (SC) has already begun its woodshed beating. 

All subprime auto businesses operate the same way. They maintain margins that make up ~3% of their loan books. That means if their funding increases marginally their profits are depleted. 

GM pays 3% for the capital is uses and earns ~12% on the subprime auto loans it dishes out. After everything is all said and done, their operating margin is 3%. The main point to take away is the small size of the operating margins after all is said and done. Remember that at the end of the day GM has been the beneficiary of cheap access to capital. That cheap capital allowed them to make bad loans and take out more cheap access to capital and more bad loans. We're at a "Peak" in auto sales, have cheap cash available, and at the end of the day they make a 3% operating margin. 

As the Fed increases interest rates, these already low operating margins will get wiped. Furthermore, loan losses are going to go through the fuckin' roof because of weak regulatory actions that make it more difficult for companies to be able to repossess cars.

GM, like other companies have found new ways to avoid "delinquent" loans on their books. They now offer customers the ability to defer their loans. I want to point out that many of these loans are subprime and already have a long life cycle (6-8 years in many cases). If we put this simply, you got a company that borrows cheap money, turns around and loans it out with a higher rate, then they allow the people borrowing that money that can't pay it back to put it on "pause." They then can avoid pointing to the toxicity of the loans and the books stay "clean." Yeah, that's not going end badly at all. 💣💣💣💣💣

Aside from this nightmare scenario, GM (financial) debt-to-asset ratio is 80%. As long as interest rates remain zero (which they haven't) GM can continue to pay off their debts. Now that the cost of borrowing capital has risen, their ability to repay their debts should suffer. 

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GET TECHNICAL

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Even with access to cheap capital, peak auto sales, and a "lack of delinquencies" GM can't seem to arouse investors and perk its stock price. It's currently sitting at major support for the issue and it barfed to 20 the last time the 29 level broke. We want to short this piece of shit to the ground if that 29 level breaks. 

Easy as ABC

“Successful trading is always an emotional battle for the speculator, not an intelligent battle.”

— Jesse Livermore

Alphabet, GOOG/GOOGL, just reported a beat in its most recent ER report and currently trades as the largest market cap company in the world today. This comes on the heels of a Facebook report that just crushed it, and an Amazon report that likely had Jeff Bezos silent for once. With that said, it's all systems go for the GOOG and it appears that their addition of Ruth Porat has changed the company's culture and impression on wall street to an "adult company." 

Here are the #'s:

Alphabet beats by $0.58, beats on revs  (752.00 +9.05)

• Reports Q4 (Dec) earnings of $8.67 per share, $0.58 better than expected of $8.09; revenues rose 18.5% year/year to $21.33 bln vs the $20.76 bln Capital IQ Consensus.

Aggregate paid clicks- Q4 +31%; Q3 +22.8%:

• Paid Clicks on Google websites- Q4 +40%; Q3 +35%.
• Paid clicks on member sites- Q4 +2%; Q3 -5%.

Aggregate cost per click- Q4 -13%; Q3 -11%:

• CPC on Google sites- Q4 -16%; Q3 -16%.
• CPC on member sites- Q4 -8%; Q3 -4%.

Revenue Segments:

• Google Website revenue +20% y/y
• Google Network Member websites +7% y/y
• Google Advertising +17% y/y
• Google Other Revenues +24% y/y
• Operating Expense as % of revenue 36% compared to 37% in prior year
• Free Cash Flow $4.31 bln compared to $2.81 bln in prior year
• TAC As a % of revenue 21% compared to 22% in prior year

This company just flexed its muscle and showed Wall Street (again) that it's not just some gimmick internet clicks company that can't turn profits. Furthermore, even at it's current valuation, the stock trades cheap ~20x forward and could create further room to the upside. 

Investors continue to be rewarded for quality in the market even after wild swings that yield negative short term performance. 

With its trend lines in tact, the measured move on this one suggest a 909 price target. 

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EXPECTATIONS

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Even after a monster quarter by Facebook last week and the bar being set high, Alphabet was able to briskly hop over the expectations and deliver. An example of this is aggregate paid clicks which destroyed the streets estimates:  (Aggregate paid clicks- Q4 +31%; Q3 +22.8%)

So what now for the stock? In the trade report put out yesterday we called for a +7% move in GOOG/GOOGL and a +$55 move in the issue. We were also long the weekly 760 C from last Wednesday and Next week 840/842.5 C. 

I'd be a little surprised if this issue pressed like FB did. With market breadth nearing the top of a range and with this stock now the biggest market cap in the world, the law of large numbers does take effect at some point. On a longer time frame however I believe the trend is your friend and this company's new discipline and stellar performance should continue. 

Snow Day

With a large portion of the east coast snowed in today and this past weekend the oil markets received an anticipated boost heading into the weekend. That said, oil's 13+% rally in just two sessions was eased heading into todays session. With traders taking their risk off the board and with the SPX making a technical bounce, some investors were quick to call a temporary bottom in oil. As I type this however, oil is making session lows and looks to test the 30 level shortly. One of two events needs to occur for bullish traders on this busy week. 

1. Oil and the markets diverge and subsequently trade independently of one another (unlikely)
2. Oil actually finds a temporary bottom and buyers step in with a little more conviction

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BUSY WEEK

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This weeks busy earnings season kicked off with McDonalds (MCD) and Halliburton (HAL) beating street estimates. However for HAL North American revenue declined by about 28% year over year and operating income dropped from $5.1 billion to an operating loss of $165 million. This read through gives us a term that we've grown all too familiar with; "Revenue recession." 

D R Horton (DHI) Posted a beat on earnings with a slightly higher-than-expected profit along with a rise in orders for the last quarter of the year. However, investors focused on DHI's growth rate which was the slowest since the fourth quarter in 2011. Even with earnings providing themselves as a catalyst of sorts, equities can't seem to get out of their own way as investors line up to exit stage left. 

Tomorrow we get a further read as P&G, J&J, Coach, and 3M give us their results in the morning. At&t, Capital One, Stryker, and of course Apple cap off the evening. That sets us up for a Wednesday which includes a myriad of more earnings reports and a Fed Statement that should keep everyone on their toes. 

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800 LB Gorilla Named AAPL

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AAPL is set to release numbers on Tuesday night after the bell amid a horrible tape and an underperforming issue since failing near its top in July. Everyone and their brother has an opinion on this stock and the issue has not been able to get out of its own way for months. 

Since July, the stock has seen its price cut by over 33% falling as low as $93 (excluding flash crash in August). With that fall, and with analysts slashing targets (albeit not dramatically) the stock finds itself in a peculiar place. Either analysts need to revise their estimates more and slash their targets even more dramatically, or AAPL is unfairly being discounted relative to the market because investors are no longer seeing it as a beacon for growth. If we strip all of that out and strictly look at AAPL as a technical play, here's what we get. 

With the stock in a downtrend and a head and shoulders on the monthly and weekly, there really hasn't been much reason to own AAPL for the last half year. The stock has however presented an opportunity with the $93 test from last week. The test of the 93(ish) level was the 2012 high and a solid retrace back to it from all time highs. Coincidentally, on that test AAPL also gave a 50% retrace from the bull run it's enjoyed since 2013. In addition, the monthly 50MA sits just below that level at ~$90. With all these indications, and a refresh cycle year for the iPhone, it would be foolish to remain staunchly bearish on this beast. If you can afford it, a risk reversal would be an interesting way to play this name heading into earnings. 

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AAPL Monthly head and shoulders but sitting right above the 2012 high retest support

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50% RETRACE

BIAS: Bullish with 92 stop (or 90 if your tolerance/timeframe is higher)

Beta Fishing

“Never permit speculative ventures to run into investments”

— Jesse Livermore

It goes without saying, even the least savvy market watcher can easily assert the correlation that oil and the markets as a whole have been trading in tandem. So when oil shot out of a cannon starting Thursday when it bottomed around 26.6 and moved all the way to 32/barrel it came as no surprise that it took the markets with it. 

Whether it's up or down, it is human nature for market speculators to continue to try to find a bottom or a top in the current environment that were in. Speculation, in its most natural state, is done in such a way to avoid being the sucker. No one wants to be left holding the bag on the way up, and no one wants to miss the bounce on the way down. This peculiar, yet rather unfortunate state, is why we often see irrational buying when markets implode, and incessant top calling when markets sky. No man wants to be the "fool" in any/either circumstance. 

Since the bounce in oil was all but telegraphed it puts the markets in an interesting position. It has been commonplace for oil and gas speculators to buy oil/gas when the weather gets cold and to cut it when weather gets warm again. So with the first blizzard of the year, and biggest one in years, combined with oversold conditions, risk in oil to the upside, and an overall market technical bounce, the bounce in oil futures was pretty much a "slam dunk." 

Personally, I am of the mindset and the belief it is always best to avoid getting in the way of a train in motion (in this case oil moving lower). If you as a speculator believe that you can stomach whatever downside risk exists in oil, by all means have fun. From experience, I have learned that markets are significantly irrational and that they more than often overshoot beyond anyone's "rational" expectations. 

With all that said, my bias on the overall markets currently is still bearish. That doesn't mean I am advocating blindly shorting, or suggesting that we are imminently going lower. I am simply looking at multiyear charts on multiple time frames in the SPY/SPX and CL_F and they still all look dismal. 

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DEEP SEA FISHIN'

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This move lower in the markets in general was telegraphed by the transports in November of 2014 when the IYT topped out and began its imminent decline. (Not) Coincidentally, the WTI broke multiyear support that same month and has never looked back. 

If we expand the charts to the start of the bull run in 2009 we notice that both these issues had stellar performances starting in 2009. The IYT advancing almost 400% (rough estimate) and WTI advancing nearly 335% (rough estimate again). The parallels here are fascinating with the most interesting caveat being that even with their sharp declines there is still room to run. Only recently did oil break its 2009 base bottom and the downtrend in the oil markets only calls for further downtrend in the IYT as shipping costs via trucking decrease in price with the falling price of gas. 

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TAKEAWAY

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The main point I am making here is that trends don't happen overnight. Just like the IYT and WTI broke almost 1.5 years ago and we're only now reeling from their problems, a two day rally that was telegraphed doesn't reverse course. It is important to take things as they are, and to remain steadfast with the overall (larger) picture. My bias will remain negative on both oil and the markets so long as the larger picture for both these issues remains to the downside. 

Red State

“Don’t trust your own opinion and always back your judgment until the action of the market confirms your theory.”

— Jesse Livermore

AS I write this U.S. index futures are getting obliterated. This comes in tandem of China's weaker yuan that has since created a rout in their equities just days before their Chinese New Year. This tumble has triggered their circuit breakers for the second time this week. 

The ES_F index is down a little over 1% to 1961 on the lows. That's nothing in comparison to what's happening in China though where the Chinese stock exchanges shut down shop less than a half hour after they opened after the CSI 300 Index obliterated more 7% triggering another circuit breaker event. 

The catalyst for the selloff in Asia comes after China's central bank cut its daily reference rate more than any other time since August. China's signaling to the rest of the world that they've got an increased threshold to do what it takes to shore up their weakening economic growth. 

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JENGA

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China puts everyone else on edge Jenga style.

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We've seen an accelerated retreat from risky assets to start the new year. With the riskiest equities taking it on the chin first. The index as a whole has already seen a 2.4% haircut and will presumably end the day and week lower than that. 

This is a classic real life scenario of the popular game Jenga. With different blocks coming off the whole group one by one. Unlike Jenga however, we don't actually need to see these blocks come down. Financial markets are operating in fear that the yuan's sharp depreciation may only accelerate, which would signal that China's economy is even weaker than everyone believed. If that's the case we could see a spark of another wave of devaluations around all of Asia and in other key countries/economies. 

With Wall Street closing at three month lows on steady volume, the signal is clear. Risk aversion is on the board. Asset managers are getting out of the riskiest assets and avoiding another shoe dropping on them. This risk aversion was only amplified by the overnight plummeting price of oil and the geopolitical concerns behind North Korea's nuclear test on Wednesday evening. And now we get this shit. Fuckin' China. 

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LINES

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Let's take a look at some levels. 

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SPX has been in a downtrend on the daily. 1973ish and 1954ish are the next lines int he sand. 

Above you we see the S&P 500 levels and downtrend on a daily basis. Below we'll see it on a weekly basis. 

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SPX weekly

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DOWN DOWN DOWN

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With all the turmoil and an absence of buyers in the market the bias remains to the downside. And with uncertainty as to how levered banks are and the level of exposure they may be facing when oil companies start going down this makes for a very troubled market situation. As I stated in the first post of the new year, the catastrophes that may lay buried underneath the oil madness are uncertain as of now and we should not try to pick bottoms. With a hint today that levels of credit default swaps in oil backed securities possibly being so high in some companies that bankruptcies and failures are nearly imminent, it goes without saying, get the fuck out the way. 

It is quite obvious beyond that rhetoric that in some cases a chase for performance and growth may continue so it is my bias that we continue to trade opportunities to the long side as they present themselves while maintaining a downward bias. 

SOAK IT IN

“There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly built into our human nature, that always gets in the way of human intelligence.”

— Jesse Livermore

I really hate the new year. It's the one time of the year where everyone is excited for nothing. The day where pundits get more insane, people really believe they'll change over night, and tension to have an epic night are higher than a Klan rally in a south Chicago ghetto. I typically hate hearing people's predictions in general for the same reason I hate twitter; as Lewis Black puts it, "Where do you get the massive ego that anybody actually gives a shit". 

As a trader, the new year especially sucks. Everyone feels like they need to give you some bullshit arbitrary "fact" and toot their own horn. I hate to pick on Jim Cramer (frankly it's just too easy these days) but I recently read his outlook for 2015. Long story short he suggested that 2015 would be the best year to own stocks. I parsed through his predictions of Dow stock performances in 2015 as well. Here's what we found. You can compare these with the actual results here.

• INTC    +35%

• UNH    +20%

• HD    +40%

• MSFT    +15%

• CSCO    +22%

• DIS    +13%

• NKE    +6%

• V    +8%

• MMM    +12%

• TRV    +25%

The point here isn't that he was wrong. In fact in some cases he was accurate (DIS +13% is pretty spot on), the issue is the same one that most pundits face; they have a hard time separating what happened recently from what they expect to happen moving forward. A classic example of this from the mouth of Jim Cramer came just six days into the new year where he suggested that oil, which had been halved in a short period of time may have bottomed. 

It's incredibly important to remember that many fund managers are Beta traders. A Beta trader is someone who by definition does well when the market does well and does poorly when the market doesn't do as well. As you've noticed this year has been tough for many of the most popular and notable fund managers out there. Guys like Ackman, Einhorn, Icahn and many others have struggled and are underperforming the markets. 

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BREATHE OUT

2015 WAS THE YEAR OF THE ANTICIPATED "BUBBLE" POP

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YOU'RE going to hear a lot of predictions in the next few days and weeks. You're also going to hear a lot of bogus statistics. Correlations that make dude's sweating in suits look like what they know what they're talking about. One example of this is that is popular amongst the talking heads right now is that when high yield bond markets fall during a given year, 80% of the time the markets are up (significantly) the following year. This will be the bull thesis moving forward for many of these "pundits" that require having an audience to actually maintain an income (They more than likely couldn't survive on their trading alone). So this reactionary tailwind will continue until it doesn't, and when it doesn't that's when it's your time to get in.

⚡️☝⚡️☝What does this mean? ☝⚡️☝⚡️

In November of 2014, I told @slavavancouver my bias that the oil markets are going to implode in the next year as Saudi Arabia floods the markets with oil to destroy the fracking companies and competition. I outlined for her, and others, my thesis that as more and more oil comes online and demand remains consistent oil will continue to fall precipitously as many oil companies are/were heavily leveraged with debt. 

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Get access to real time trades, analysis, and market insights in our live chat room

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I'm not trying to pound my chest here or give the whole "I told you so" bullshit. I am however absolutely certain that I did not hear that narrative from any major financial syndicate until fall 2015. So what I'm saying above is that you're going to hear a lot of reactionary nonsense about how people now know what the hell they're talking about with markets and with the fall of oil. You're going to hear a lot of differing opinions and a dialogue tug of war about the oil markets. Here's the reality.

There are a lot of companies that have a lot of debt. I'm talking a mountain of fucking debt. These same companies are going to get obliterated. The big ones are going to take on more debt to keep operations going business as usual for shareholders and so they can offer pennies on the dollar to buy out the smaller destroyed companies and claim their assets. A fucking land-grab of assets. One problem -- everyone's ready to call a bottom. That makes me believe that we're going a lot lower in oil. The bias is that $20 oil is low and we "can" reach that. Well what if we blow through that? What happens then? What happens for the huge companies that think they can keep it together? I'm not predicting that we do get there, but I've been doing this for 10 years now and markets rarely give investors time to get out, or get in. This is a disaster extreme case scenario and though I'm not calling for it. But I'm also not ruling it out. Ignore the guys and girls too smart for their own good on TV. Don't attempt to find a bottom. CASH IS A POSITION.

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UNDER THE HOOD

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THERE is no reason why the current bias (lower) should change at all. Hope is not a merit by which traders can profit consistently. That said, sit on your ass, ignore the bullish rhetoric and wait. Be selective, be skeptical, and be patient. The markets rarely give individuals an opportunity to get in or out. We've been hanging around 2100 for a very long time now, the bias is if we were going to breakout, we would have done so. With market breadth weakening "under the hood," it's only a matter of time before investors start to sell the winners (NFLX AMZN GOOGL PCLN FB). It's also unlikely that this "dash for trash" continues into the new year as there is no catalyst currently to help the dip buyers that existed at the end of 2015. 

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SPX Rounded top with a downtrend on a lower high

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TROUBLE IN PARADISE

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There is no reason to step in and try to pick where the bull vs bear fight will end

I like to use relationships as a metaphor when explaining the stock market to those who don't know much about it. In this case, the market provides a very good metaphor. The more you hear someone attempt to convince you (and themselves) that their relationship is in good standing, the less likely that is the case. The more a couple has to have talks about how to make things work, the less likely things will actually work. Keep that in mind when you hear pundit after pundit give you bogus stat after bogus stat on why the market should go higher in 2016. 

I am not advocating that a year from now we won't be higher, I am simply advocating that there is currently no reason for us to go higher. I am an advocate of waiting for a flush of some kind and a floor before looking to get aggressively long. 

My sentiment in 2016 is simple. Oil is fucked until it's not, stocks are struggling to find leadership, breadth is weak under the hood, bifurcation will only get worse, pundits will stay behind the curve, cash is still a position, leaders will lead both upwards and then back down, and finally no need to be a hero. As always, do your own homework and ignore the noise you see on the tube. Their performance is not much better than the average joe.

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As always if you liked this post please click the 💜and/or share. 

Stick to the Plan

Start at Stop: Form a Plan

“The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately.”

— Jesse Livermore

You're probably here because you want to make money in the stock market. You might be someone who is new to trading, someone who's been trading for a while and wants to get better, someone who thinks the market is rigged, someone who is bored and doesn't want to trade on their own, someone who is at their wits end with the market etc etc. Whatever the reason is that brought you here today, if there is one thing that you take away from this site please let it be this -- Form a plan and stick to it.

Let's run an experiment. Close your eyes and think of the last person you spoke to about the stock market that isn't an active trader/investor. What was the first thing they asked when you told that person about the market or a trade you took? Almost all of you probably thought "How much can I make?" That comment is so unbelievably common it almost always makes me chuckle. That comment is why I wanted to start here, at the very beginning. 

Most people who fail when it comes to investing/trading do so because they lack focus and conviction in their plan. Whether it's not knowing your setup, not trusting your setup, or just plain old greed, lacking a plan or not sticking to one will almost always ruin you as a trader/investor. Having a plan is so important that I felt it must be addressed at the very top. Having a plan is the fundamental backbone to investing/trading. It is something that anyone can do, even if they have no stock market experience. 

You might be asking yourself "How do I form a plan if I don't know anything about the stock market?" Ah, that's simple, by using a stop loss.

• Stop Loss:  In simple terms, a stop loss is your emergency exit strategy. It's the absolute maximum you are willing to lose on a trade/investment that you place. 

The most common mistake I see from new and seasoned investors alike is not respecting their stops, or worse, not having one. Even more troubling, and like the experiment we ran at the top, many who are new to investing (or worse some who have been doing it for years) think in terms of what their profit will be prior to entering a trade, rather than what they could possibly lose. This is a fool's mindset. The key to investment/trading is capital preservation. You simply cannot preserve your capital if you do not know what you can possibly lose. 

So if you take nothing away from this post, or any other post in the future, please take the following away; Always know what you are willing to lose before you enter a trade. Always know your breaking point. 

That simple rebalance of your thought process will set you apart from most investors/traders and put you on the path to success. 

Holy Burrito

“Patience is the key to success not speed. Time is a cunning speculator’s best friend if he uses it right.”

— Jesse Livermore

The market will make a fool out of anyone. Even when you are right, there will come a time where your patience is tested and you will subsequently question yourself. With the rush of bad news in Chipotle a few weeks ago you would have believed that the stock would be left for dead. The market was poised to make a mark out of anyone however and test the resolve of anyone who was waiting for damning news (myself included).  

A little over a week ago I wrote about closing half of my $CMG positions. Not because I did not believe in all of the bearishness, but rather because the stock was not behaving how I would like. I also highlighted that we would wait for our cue to re-enter puts in the stock and play it for some more downside. A few days later we got our catalyst. 

Jim Cramer had the Chipotle management on his show late last week. In the interview the CMG CEO told Cramer and his audience that the E.Coli scare has been contained and that it essentially would not trouble the company moving forward. The stock however, told a different story. The next day CMG gapped up into previous resistance and battled into the 10day yet again. From there, the stock sold off and continued to do so for three days. On that failure, I added to my existing position and used the high set as my stop. 

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CMG failed trend

With a little bit of luck, a lot of patience, and even more homework the trade did not present a failure or retest of trend of any kind. With the market's poor reaction to Aunt Yellen and her crew's rate hike decision the stock continued to prove a good one. 

In Reminiscences of a Stock Operator the lead character Larry Livingston (Jesse Livermore's character) speaks on many occasion of being in a trade and watching the stock operators manipulate the stock. He comments on how he's been in the right trade and watched his paper profits all but evaporate. This is the scenario I found myself in prior to being given the opportunity to add to the position. There comes many times as a stock trader where your resolve will be tested. This scenario proved no exception. And with the price action staying consistent but the swings growing wild I would be lying if I told you I didn't question the trade. That said, the stock failed the highlighted level (again) and sure enough the weak tape was correct again as more E.Coli news circulated. 

As important as it is to hold true to the setup it is equally important to take your profits when you are handed them. Without expecting any sort of news like this I/we would be foolish not to capitalize on this gift. With that said and with IV shooting through the roof I was able to clear off my books more than 40% of the position for stellar profits. The cost of the trade and then some was removed and I will continue monitoring the issue closely. 

Here's a timestamped notice of the position and how it eventually turned out. 

CMG position highlighted this morning.

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For the sake of keeping tabs, lets take a look at some important levels CMG will face moving forward.

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CMG Weekly

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DERIVATIVE

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With a dwindling consumer base many of these customers will have to go elsewhere. People still have to eat, you know? That said, it is plausible that CMG competitors Moe's and Q'doba see an uptick in traffic YoY. It's also very likely that other fast casual dining options start to get more volume. So with that said, let's take a look at both JACK and PNRA: 

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JACK Rangebound

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PNRA Constructive

Between the two charts, it appears that JACK provides the cleanest setup to the upside as the issue has been rangebound for several months now. PNRA also sets up nicely above 200/share.

We will keep an eye on the issues moving forward and look for a continuation. As always if any of this has been helpful please comment/like/share. 

Juice Cleanse

“The fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.”

— Jesse Livermore

If the Wall St. narrative runs its course, something definitely has to give with AAPL. The issue, which has traded poorly since making an all time continues to do so. If you have not yet, you should start to consider what your threshold tolerance for pain should be.

What was once a market leader, AAPL has certainly underperformed its peers this year. With stocks like AMZN NFLX and GOOGL all up substantially YTD it is only fair to wonder what is happening with AAPL (the stock, not the company). Before I dive in a little deeper I want to stress that I am a big fan of the company and believe that they are the most soundly run company that I've ever encountered. I liken Apple as the A student in the class. Eventually, the teacher gets accustomed to that student's stellar results and starts to only make commentary on his/her "poor" (A-) performance. The opposite is also true. There will always be students that are B/C students and when they start to perform up to the B/A level the teacher will be impressed more so than when the A student continues to make his/her marks. Let's focus on this first.

As humans, we're psychologically wired a certain way. Specifically, we like to believe that we are the purveyors of information and that we actually know more than our peers. Ironically however, it takes those same peers for us to get anywhere typically. That's why shit stocks like TWTR continue to find fools as they continue their landslide lower. In order for a market to be made, you need liquidity. In order for liquidity to exist, you need people on opposite sides.

It is very important to distinguish between Apple the company, and AAPL the stock. As I said above, the company is likely the best one we've ever seen and will ever see in our lifetime. Currently however, the stock is not. As highlighted a multiple times and most recently a week ago, the stock is currently and has been trading poorly. It does not matter what time frame you use on a chart, it is tough to find viable support in the issue. That said, that's not the biggest problem the stock may face. I use the word may because this company has been founded on innovation and can turn the corner at any point and regain their innovative ways. We can all speculate what we believe is in their pipeline, or what cutting a particular supplier may do, but at the end of the day we simply do not know. 

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GETTING "OVER"

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Aside from poor performance and relative weakness to its peers, AAPL has another hurdle it may have to overcome. Up until now, the stock is still endeared in the eyes of Wall St. analysts. With 47 Buy ratings, 7 Holds, and 1 Sell, the stock is still heralded. Though this works in the favor of the company currently, it may end up "taking a bite" out of the stock in the future (if things precipitate to the downside).

Let me put that statement in basic terms for you. Currently, basically everyone and their fucking brother is positive on AAPL, and the stock still can't seem to perform. What happens when people who have been bullish all of a sudden get tired of the bull case and switch their tune? If the stock is not performing by then, it will likely start to really crumble. 

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Another past positive and potential clusterfuck for them is the ownership stake by Carl Icahn. Upon announcement of the stock purchase, the stock rallied, and rallied hard to eventual all time highs. Icahn indicated that this purchase was again a "no brainer" like his NFLX transaction. Though this may be the case, the stock's performance has not been that way. So it will be interesting to see where he goes with this trade moving forward given quickly rising poor market sentiment. 

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THE SKINNY

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At this point many speculate that part of the problem with how AAPL has been behaving/performing is in part due to their potential that this will in fact be the first holiday quarter in which the company does not see iPhone sales increases. Put another way, this will be the first time (allegedly) where the company sees a slowdown in iPhone sales year over year (COMPS). 

That said, the stock is still cheap. Trading at <10x EPS. At this point it really depends on what type of investor/trader you are. If you are of the speculative variety and look for quick hitters, this is probably not the stock for you. If you are looking for value and for potential long term growth, this could soon provide you with the "no brainer" opportunity many see/saw in the stock. In my eyes, the stock is currently a "no touch" until it proves the 105/103 support zones are for real or clears 122. 

As always, if you found any of this useful please share. Cheers!

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